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Morgan Stanley continues in its aim to become the leading wealth and investment ervices firm with another aggressive aquistion. $MS announced an intention to buy Eaton Vance $EV for $7 billion. This follows the bank completing its $13 bln acquisition of E*TRADE $ETFC.

 Morgan Stanley 

Morgan Stanley NYSE: MS Reported Buying Eaton Vance NYSE: EV Before Open Thursday

The EV Deal

Each EV shareholder will receive $28.25/share in cash and 0.5833 MS shares for each EV share held. This amounts to approximately $56.50 per share, equating to a 38% premium to yesterday's closing price for EV. Additionally, EV shareholders will receive a one-time special cash dividend of $4.25 per share to be paid pre-closing by EV

Morgan Stanley is utilizing the accommodative Federal Reserve programs and the resultant heightened volatility in futures, commodity and FX markets, The acceleration in trading activity has seen MS's Institutional Securities segment revenues boom with 56% net revenue growth in Q2.

MS has also bee building up its other two segments, Wealth Management and Investment Management, which account for nearly half of the company's total revenue.

  • MS completing its $13 bln acquisition of E*TRADE (ETFC) this week and has quickly moved to it's next buy.
  • On Thursday MS announced its intention to acquire Eaton Vance (EV) for $7.0 bln.

The addition of ETFC significantly expands MS's reach within wealth management, especially within the retail investor market, while EV substantially bolsters its investment management business.

The intention is MS becomes a leading player in both the wealth management and investment management industries, which simultaneously lessens its dependence on the more volatile trading and investment banking businesses. The consistent fees inherent in the wealth management and investment management segments make MS's business more stable. With over $500 bln in assets under management (AUM), EV is a sizable company.

Once the acquisition is completed (target timeframe of 2Q21), total AUM for MS's Investment Management segment will jump to $1.2 trillion with revenue of $5.0 bln. EV's Parametric index-tracking funds were particularly alluring to MS.

EV's website says the Parametric business, which has ~$300 bln in assets, "uses investment science to build and manage systematic investment strategies and to implement custom portfolio solutions..."

EV has a strong presence domestically with financial advisors, while MS's product distribution strength skews towards international markets. The deal is a good strategic fit BUT a possible concern is that MS overpaid

CEO James Gorman ruled out addition acquisitions, saying that MS's focus over the next two years will be on integrating ETFC and EV. That comment is reassuring, but execution risks will remain elevated as the company combines operations, systems, and personnel under one umbrella. The main takeaway, though, is that MS's mission to create three market leading financial services businesses - Institutional Securities, Wealth Management, Investment Management - just took another major step towards being completed. 

Source: MS 

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